Small Claims Court: Big Ideas for Reform

Small claims court is our legal system’s best kept secret. Especially when combined with a mediation program that encourages people to settle their cases outside the courtroom, the small claims system offers high-quality justice at a reasonable cost. But unrealistically low dollar limits and restrictions on the types of cases allowed in small claims court hobble its usefulness. So, what can be done to fix the small claims system? Glad you asked.

Small Claims, Big Benefits

Small claims court offers people a chance to participate directly in their own cases. This fundamentally democratic aspect of the process is popular with most participants. And directly experiencing the problems, imperfections and ambiguities of presenting their cases often affords them a more realistic view of how our legal system works, as compared to a formal court, where most people participate secondhand through lawyer surrogates. Few participants in small claims court end up concluding that “I was robbed.”

The great majority of common, everyday disputes are easy to understand and require relatively little money to resolve. These include spats over auto and home repairs, landlord-tenant problems, unpaid bills and substandard services. It’s not worth the time or money to take these disputes to regular court. With attorney fees routinely running upwards of $250 per hour, a dispute must be worth at a bare minimum $25,000 before it becomes cost-effective to hire a lawyer, with $50,000 being more realistic for cases that require significant pre-trial discovery. If it’s any less, the costs of resolving the problem — including lawyers’ and court fees — loom larger than the problem.

Because formal rules of evidence are relaxed, in small claims court a judge can consider all evidence the parties present, which often produces a more just result. For example, in a landlord-tenant dispute, a small claims judge can read a building inspector’s report if either party requests it. By contrast, in a regular court, the report might be rejected under formal rules of evidence unless the building inspector is present to testify to its authenticity, something that’s often unaffordable in a small dispute.

Squeezing the Claim to Get Through the Courthouse Door

Unfortunately, because of ridiculously low dollar limits ($3,000 to $7,000 in most states; see Nolo’s How Much Can I Sue for in Small Claims Court for limits in all states), people with larger claims face a miserable choice. They can kiss off a good chunk of their potential recovery by reducing their claim to the small claims court maximum, try to represent themselves in a regular lawyer-controlled trial court, or hire a lawyer and take the risk that the fee charged are likely to be more than what they win.

Assume, for example, that a homeowner and a contractor disagree about whether a $30,000 kitchen-remodeling job was done properly. Angry words are exchanged, and attempts to compromise prove futile. Each person hires a lawyer and the case goes to trial two years later. Including two depositions the lawyers each bill for 40 hours of time at $250 per hour, costing each party $10,000. Court fees, document preparation and expert witness fees add another $1,500 each. Assume now that the homeowner wins a partial victory — he need only pay the contractor $18,000 for the substandard work. Add that to the $11,500 in legal expenses, and the homeowner is out a total of $29,500, not much of a victory. The contractor fares little better, netting only $6,500 out of his $18,000 judgment. In short, both sides do wretchedly not even counting all the hours of anxiety that went into the fight.

If the same case were brought in a small claims court with a strong mediation program, both the homeowner and contractor would have a much better shot at justice. Filing fees would amount to about $50, and each side could choose whether or not to spend a few hundred dollars to have the kitchen work evaluated by an expert witness. The case would then be promptly sent to a mediation program. With the help of an experienced mediator, there would be a good chance of the parties agreeing to a quick settlement. (Learn more in Nolo’s article Mediate Your Small Claims Case.)

If mediation failed, the case would be heard in small claims court within six weeks of filing, with each side getting the chance to have its say and present evidence. By keeping costs low, both parties would benefit almost no matter what the small claims judge decided. For example, even if the judge only knocked 20% off the contractor’s bill, as opposed to 40% in the scenario above, the homeowner would pay a total of $24,000 plus a few dollars in fees as opposed to $29,500 in formal court. And the contractor, who gets to keep close to 100% of his money would also come out far ahead.

The Solution: Dollars and Sense

The small claims court dollar limit should be raised to at least $25,000 in every state — an amount high enough to allow many consumer and small business disputes to be resolved in court without lawyers.

Simplified small claims procedures should also be made available for many more types of cases, not just those involving money, as is true in most states today. For example, it it’s appropriate, a small claims judge should be allowed to order a neighbor to remove a dangerous tree or tell a tenant who doesn’t pay the rent to vacate an apartment. Lawyers should be banned from small claims court (as they already are, in some states), except when appearing for themselves.

Every court should provide a quick, easy-access mediation alternative right in the courthouse. States which have done this report that up to 50% of contested cases are settled by the parties themselves, with the help of a mediator with no need to ever enter a courtroom. And happily for money-starved state governments, paying a mediator (who need not be a lawyer) is much cheaper than paying for a judge and running a courtroom. In short, even a free mediation system quickly saves taxpayers’ money.

Finally, consumers should be better educated about how to use small claims court through self-help pamphlets and well designed websites that should include videos demonstrating how to properly prepare and present a case.

In California, when a small claims court case is filed, a few dollars of the filing fee go to the small claims advisor program. In more populous counties, a trained consumer advocate provides free counseling to any person involved in a small claims suit. In rural counties, phone-in counseling is provided. Small claims court advisors, who are particularly helpful to first-time filers, counsel both plaintiffs and defendants on how to research the law, prepare evidence and appear in court.

An in-person advisor program like the one currently in place in California could be pivotal in helping small claim litigants navigate the system. These programs can be funded at no taxpayer cost by slightly increasing the fee to file a small claims case.

Small claims court is a key part of the American legal system. These reform steps would bring vast improvements to the small claims process and big benefits to the people who use it.

How does your state handle small claims cases? Learn more in Nolo’s 50-state article collection Small Claims Court in Your State.